Wednesday, September 24, 2008

Hands off the Ferrari

One of my favorite Hank Paulson quotes, as he tries to drum up support for a $700 billion rescue of Wall Street, was this one. (U.S. taxpayers are preparing to buy a bunch of bad mortgage-backed bonds to clean up the balance sheets of financial firms.) Paulson was responding to a proposal by those grumpy Democrats to cap executive pay packages at companies that receive bailout money.

“If we design it so it's punitive and so institutions aren't going to participate, this won't work the way we need it to work."

Restrict CEO compensation? L’audace! Haven't the red-faced chieftains of Wall Street been humiliated enough just by virtue of having to step forward and ask for help? In all seriousness, the Democrats' pay slap-down isn't one of the better ideas to attach to this bill. Either firms will find loopholes to ladle out compensation in new, innovative ways or they’ll face a talent drain. Reforming executive pay excesses on Wall Street should be hived off from the urgent matter at hand, fixing a financial crisis.

What's galling though is how Paulson’s quote shows him to be out of touch with reality. In truth, financial firms of all stripes are queuing eagerly to get a chunk of this $700 billion. Will a few gracefully demur, saying “no thanks, we’ll keep our toxic waste ” if they find out that aid comes at the cost of no longer being able to so richly compensate their top executives? Maybe. But somehow I doubt it.